Globus Medical Inc

NYSE:GMED

Earnings Call Analysis

Globus Medical Posts 116% Revenue Growth Post-Merger

Globus Medical reported robust Q2 results with a 116% revenue increase to $630 million, driven by their merger with NuVasive. The company achieved a non-GAAP EPS of $0.75, a 20% rise despite a 35% increase in outstanding shares. Musculoskeletal revenue soared by 130.8%, while enabling technologies grew by 5.8%. U.S. revenue hit $499 million, and international revenue grew by 182%. The company issued an updated 2024 guidance with net sales expected between $2.47 billion and $2.49 billion and non-GAAP EPS in the range of $2.80 to $2.90, indicating confidence in continued growth and integration synergies.

Introduction

Globus Medical experienced a transformative second quarter driven by the integration of NuVasive, resulting in substantial growth and operational advancements. The synergy between the two organizations has positioned Globus Medical to become a preeminent player in the musculoskeletal technology space.

Financial Performance

In the second quarter, Globus Medical reported revenues of $629.7 million, marking a 115.9% increase year-over-year and a 117.3% rise on a constant currency basis. The GAAP net income stood at $31.8 million, translating to $0.23 per share, whereas non-GAAP net income surged by 61.5% to $102.7 million, or $0.75 per share. The firm also achieved an adjusted EBITDA margin of 30.2% and generated $26.5 million in free cash flow for the quarter .

Key Drivers of Growth

One of the primary growth drivers was the significant rise in musculoskeletal revenue, which soared by 130.8% to $592.9 million, largely attributed to the NuVasive merger. When adjusted for the prior period, musculoskeletal revenue displayed a pro forma growth of 3.7%. Revenue from Enabling Technologies grew by 5.8%, underpinned by the strong adoption of capital units and robotic systems, particularly in the U.S. market .

Integration and Operational Synergies

The company has successfully merged the field organizations of Globus and NuVasive, creating a robust team and enhancing operational efficiencies. This merger has unlocked substantial synergies, leading to cost savings and setting the groundwork for future growth. The integration efforts are ongoing, with common systems being implemented in the U.S. and plans to extend these to international operations in the near future .

Product Launches and Innovations

Q2 saw the launch of four new products, bringing the total to nine product launches year-to-date. Significant new offerings include the Revel-S expandable cervical disc spacer system, the HILINE posterior band fixation system, the XLIF Prone system, and the AUTOBAHN Pro instruments for streamlined surgical workflows. These products are designed to address varied surgical needs, enhancing procedural accuracy and patient outcomes .

Market Penetration

Globus Medical continues to make inroads into both the U.S. and international markets. U.S. revenue saw a 103.5% year-over-year increase to $499.5 million on a reported basis, while international revenue grew by a staggering 182.3%, achieving $130.2 million. The growth in international markets was driven primarily by robust implant uptake in the EMEA and Latin American regions .

Profit Margins and Cost Management

The GAAP gross profit margin declined to 58.7% due to the amortization costs associated with the NuVasive merger. However, the adjusted gross profit margin stood at 67.2%. The company aims to return to a mid-70s gross profit profile through cost synergy plans, including in-sourcing actions set for the next two to three years. Research and development expenses were $37.7 million or 6% of sales, reflecting the integration efforts of NuVasive .

Future Outlook

Looking forward, Globus Medical anticipates full-year 2024 net sales to range between $2.47 billion and $2.49 billion, with fully diluted non-GAAP earnings per share expected between $2.80 and $2.90. This guidance represents growth of 3.1% to 3.9% in net sales and 20.7% to 25% in non-GAAP EPS over the prior year, despite the increased share count post-merger. The company remains cautiously optimistic as it continues to harness the synergies from the merger while focusing on sustained growth .

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to Globus Medical's Second Quarter 2024 Earnings Call. [Operator Instructions]

I'll now turn the call over to Brian Kearns, Senior Vice President of Business Development and Investor Relations. Mr. Kearns, please go ahead.

[Brian Kearns, executive]

Thank you, Steven, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Dan Scavilla, President and Chief Executive Officer; and Keith Pfeil, Chief Operating Officer and Chief Financial Officer. This review is being made available via webcast accessible through the Investor Relations section of the Globus Medical website at www.globusmedical.com.

Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements. Our Form 10-K for the 2023 fiscal year and our subsequent filings with the Securities and Exchange Commission identify certain factors that could cause our actual results to differ materially from those projected in any forward-looking statements made today. Our SEC filings, including the 10-K, are available on our website. We do not undertake to update any forward-looking statements as a result of new information or future events or developments.

Our discussion today will also include certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We believe these non-GAAP financial measures provide additional information pertinent to our business performance. These non-GAAP financial measures should not be considered replacements for and should be read together with the most directly comparable GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are available in the schedules accompanying the press release and on the Investor Relations section of the Globus Medical website.

With that, I'll now turn the call over to Dan Scavilla, our President and CEO.

[Daniel Scavilla, executive]

Thanks, Brian, and good afternoon, everyone. Globus delivered another robust post-merger quarter in Q2 with sales of $630 million, growing 116% or $338 million. Non-GAAP EPS was $0.75, increasing 20% versus prior year, even with the 35% increase in outstanding shares driven by the merger. Free cash flow was $26 million for the quarter and adjusted EBITDA crossed 30% as we build our way back to the mid-30s range.

Q2 is a second quarter where we integrated the Globus and NuVasive field organizations into one formidable team, rolling out new reporting structures globally, combining product portfolios to create best-in-class offerings to our surgeons, reorganizing support organizations, implementing common systems and begin to unlock synergies to drive future growth. Through all of this change, Globus launched 4 new products in Q2, reaching 9 product launches year-to-date and have set the stage for a record number of launches in the coming months. These results are a testament to our incredible team working tirelessly around the clock to drive integration, overcome challenges and create scalable solutions so that we can reach steady state quickly and shape the markets in which we compete.

Focusing on the performance of our business. U.S. Spine grew 100% in Q2 with notable gains across our product portfolio in expandables, biologics, MIS screws and cervical offerings, including simplify cervical disk. This growth is driven by the strength of our combined product offering, competitive rep recruiting from prior quarters and increased implant usage through robotic pull-through.

Competitive rep recruiting remains solid through Q2 and the pipeline is growing. As mentioned in the last earnings call now, more than any point in our history, the most successful and tenured competitive professional reps are seeking to join our team. Competitive reps with over 10 years of tenure wants a rarity to recruit are seeing the power and future we can offer them as a destination of choice for innovation and growth. 2024 has the potential to be a record recruiting year.

On the product development front, we continue to execute launching 4 new products from our prolific R&D pipeline. The combined product development team has hit its stride with meaningful collaboration in developing and launching new products, and we expect these to continue at this accelerated pace due to improved development processes.

I want to share these meaningful launches with you. Revel-S is an expandable stand-alone ACDF spacer system delivered at a minimized height to reduce impaction and tissue retraction while providing controlled, continuous expansion to help restore disc height and sagittal balance.

In situ bone delivery allows for additional bone graft to be introduced after expansion to help promote fusion. HILINE is a versatile posterior band fixation system for the cervical and thoracolumbar spine, featuring robust implants and advanced instruments. The system is engineered to help achieve strong reduction during deformity correction, provide reliable stabilization and compromised anatomy and facilitate ligament augmentation. The XLIF Prone system is yet another testament to our commitment advancing XLIF-procedural solutions with dedicated instruments and positioner combined with EGPS and E3D.

The system is designed to improve the safety, reliability and reproducibility of the XLIF procedure, emphasizing secure patient positioning, MaXcess 4 retractor stability and surgeon ergonomics. AUTOBAHN Pro instruments and digital targeting system are next-generation instruments for trochanteric nailing that allow for streamlined surgical workflow. The procedural targeting solution features a minimally invasive aiming handle, targeted anti-rotation wires, self-retaining sleeves and tactile compression, while the universal nailing instruments improve efficiency for the AUTOBAHN Pro Troch Nail and the AUTOBAHN EVO Femoral Nail platforms.

In addition to driving growth from the 9 products that we've launched so far this year, I look forward to sharing future impact with launches as we go through the rest of 2024. Enabling technology sales were $37 million, up 6% versus prior year. Q2 was the highest number of robot unit placements since launch, growing 59% over prior Q2, including the acceleration of our rental program, where, unlike a unit sale, we recognize revenue over the rental contract life. Robotic procedures continued to accelerate, growing 26% versus prior year and exceeding 77,000 robotic procedures performed since launch.

We are adding NuVasive products such as Reline and Modulus to our enabling tech platform to expand customer options and plan on offering this later this year. Exiting Q2, our robot pipeline is healthy, and we are poised to have a great second half robotic performance. We also continue to penetrate the market with Excelsius3D imaging systems and market interest remains high for E3D as we enter Q3. Our international spinal implant business delivered record sales in Q2, growing 200% on a constant currency basis compared to prior year.

Globus increased investment in our international business for people, products and sets, and we have achieved consistent above-market growth throughout these regions as a result. We have yet to fully harness the power of the combined Globus innovative product offerings internationally and feel this will be a significant tailwind moving forward. The combined Trauma and NSO business delivered 321% growth for Q2, driven by the continued powerful performance and market penetration of our base Trauma business, combined with the fast uptake of the NuVasive specialty orthopedic growth now. The combination of these 2 businesses is one of the strengths of our merger, offering a broad range of products and market-changing innovation.

Late in Q2, we received FDA 510(k) clearance for 2 significant components of our arthroplasty business. Joining the already best-in-class Excelsius ecosystem is the ExcelsiusFlex robotic navigation platform, paired with the ExcelsiusFlex TKA, a Total Knee Arthroplasty application, designed to enable consistent accurate cuts while maintaining surgeon flexibility and tactile feel. It accommodates varying surgeon preferences by offering imageless and CT-based workflows and ergonomic unrestricted, jig-less resections. ExcelsiusFlex TKA is engineered to restore control of the sole and the procedure to the surgeon, while active tracking is engaged. The system features advanced registration and planning algorithms to enable a streamlined and efficient procedure along with the simplified user interface.

The ACTIFY 3D Total Knee System is a contemporary total knee solution that pairs cementless reconstruction with operative efficiency and anatomic fit. Compatible with manual or robotic-assisted workflows, ACTIFY 3D is engineered to combine implant, endurance and a porous lattice interface for cementless fixation, addressing surgeon preference and varying patient anatomies. Launch programs have begun for these products as we continue to expand our direct sales force to penetrate the market later this year. NuVasive Clinical Services is a key element in our proceduralization strategy and cross-selling synergies, growing 5% on a pro forma basis.

Globus is investing in expanding our neuromonitoring inventory worldwide, to ensure that NCS neural monitoring is used in more of our procedures. Looking ahead, we've begun investing in next-generation systems that will expand surgical applications, add more signal analytics, automation and seamless integration with our enabling technologies.

Moving into integration status. We continue to invest in our field sales teams with product cross training, enabling tech hands-on experience and significant investment in key product sets, so they can increase their growth opportunities and offerings to their surgeons through cross-selling. We have implemented common operating systems in the U.S., allowing us to work as one company and one team. International system synergies will start later this year.

In product development, we are carrying forward the rich history of rapid development as an industry thought leader as we work with our surgeon partners to address unmet clinical needs, from pioneering the XLIF procedure that is now the gold standard of lateral surgery, leading the marketing and expandable spacer technology and developing the best final robot with the most advanced interoperative CT imaging, we are working to create surgical proceduralization of all key spine surgeries to create the standard of care across the spine industry.

Our intellectual property portfolio has been #1 in the spinal industry for the last decade, and Globus is committed to further expanding this lead, especially in the enabling tech arenas as we continue to be at the forefront of imaging, navigation and robotics. To accomplish this, we remain committed to continuing existing projects, and we'll have an ongoing PD presence on the West Coast focused on spine and neuromonitoring solutions. I believe our long-term prospects as a leading innovator have never been stronger.

We continue to enhance our surgeon engagement programs to increase our impact with surgeons and further strengthen how we interact with them in all aspects of our business through professional affairs, scientific affairs, marketing and education. In the second quarter alone, we trained over 400 surgeons globally through Merck programs and case observations. And in addition, posted approximately 250 surgeon in-house visits or VIPs, where they learn about products and programs through hands-on training.

As you can see from this quarter's financials, synergies have been identified and actions have begun to be realized for benefits focusing on out-of-pocket spending and prioritizing investments to match future growth plans. In-house organizational structures have been implemented, and we are working towards reaching steady state in the second half of the year.

I believe the potential for Globus has never been greater. It's up to us to harness our resources and shape the future of our markets. We have at our fingertips everything. We need to realize this.

I want to thank the worldwide Globus team for your dedication and support, delivering an incredible quarter and furthering the pathway to becoming the preeminent musculoskeletal technology company in the world. I will now turn the call over to Keith.

[Keith Pfeil, executive]

Thanks, Dan, and good afternoon, everyone. Momentum at Globus continues to grow as we've completed another impressive quarter since the closing of our transformational merger on September 1, 2023.

Commercially, our teams have forged deeper bonds to continue on a path of growth. Operationally, we remain heads down to realize efficiencies of plans put into place while preparing for the next wave of investments to drive greater efficiencies looking ahead. Our drive for profitable growth and prudent cost control remains energized in our culture as we chart our path forward and the second quarter results demonstrate our steadfast commitment.

Digging into the second quarter. Revenue was $629.7 million, growing 115.9% as reported and 117.3% on a constant currency basis. Day adjusted growth was 113%, with 1 more selling day in the U.S. and international as compared to Q2 of 2023. Our Q2 GAAP net income was $31.8 million, resulting in $0.23 of fully diluted earnings per share. Q2 '24 non-GAAP net income was $102.7 million, delivering $0.75 of fully diluted non-GAAP earnings per share.

The second quarter non-GAAP net income grew 61.5% over the prior year quarter, while earnings per share grew 20%. However, as Dan commented on earlier, non-GAAP EPS was impacted by a 35% increase in diluted shares as a result of the merger. Q2 adjusted EBITDA was 30.2% and free cash flow was $26.5 million.

Musculoskeletal revenue in the second quarter was $592.9 million, growing 130.8% compared to the prior year quarter, driven primarily from the contributions of the NuVasive merger. On a pro forma basis, assuming NuVasive was in our prior period results, musculoskeletal revenue grew 3.7% versus the prior year quarter.

This is the third consecutive quarter of pro forma musculoskeletal revenue growth driven primarily by our U.S. and international spine businesses as well as our combined trauma portfolios. Enabling Technologies revenue grew 5.8% in the second quarter compared to the prior year quarter. Revenue growth was strongest in the U.S. market. However, it was partially impacted by a higher mix of rentals during the quarter. Overall, our second quarter stands at the highest quarter ever for combined capital units and highest EGPS robotic units moved during a quarter, whether an outright purchase, rental, lease or volume-based arrangement. As we look ahead, we remain well positioned to further penetrate the market with our suite of Excelsius technologies.

Our second quarter U.S. revenue was $499.5 million, growing 103.5% as reported compared to the prior year quarter. On a pro forma basis, U.S. revenue grew 3.1% compared to the prior year quarter, driven by contributions from spine, trauma and enabling technologies. I call attention to the fact that we've experienced U.S. sales growth on a pro forma basis in each full quarter of results since the merger with NuVasive. International revenue during the second quarter was $130.2 million, growing 182.3% on an as-reported basis compared to the prior year quarter.

On a pro forma basis, international revenue grew 4.4% as reported, led by strong implant uptake, partially offset by lower capital sales, primarily as a result of lower Pulse unit sales. Our growth of implant sales were strongest in the EMEA and Lat Am regions. GAAP gross profit was 58.7% in the second quarter of 2024 compared to 73.8% in the prior year quarter.

Consistent with commentary from previous quarters, the decline in gross profit is associated with the NuVasive merger, namely step-up amortization. As a reminder, step-up amortization is expected to end during our fiscal fourth quarter. Excluding the impact of step-up amortization, adjusted gross profit was 67.2%. The decline in adjusted gross profit is driven largely by the inclusion of NuVasive in our consolidated results as well as some higher nonrecurring inventory reserve expenses.

Consistent with my comments last quarter, we still expect the full year adjusted gross profit rate to be in the mid- to upper 60s for the full year of 2024. Our longer-term goal is to return to a mid-70s gross profit profile, which will be achieved through in-sourcing actions with our year 2 and year 3 cost synergy plans. Research and development expenses in the second quarter were $37.7 million or 6% of sales compared to $21.3 million or 7.3% of sales in the prior year quarter. The increase in spending is primarily the result of the inclusion of NuVasive and our consolidated results partially offset by the impact of cost synergy actions taken.

Looking ahead, we now expect full year R&D expense to be in the range of 6.5% to 7% for the full year 2024. SG&A expenses in the second quarter of 2024 were $238.1 million or 37.8% of sales compared to $120.1 million or 41.2% of sales in the second quarter of the prior year. The increase in total SG&A dollars is directly a result of the NuVasive merger, partially offset by cost actions taken as well as fixed cost leverage on spending.

Looking ahead, our expectation is that full year SG&A expenses will improve 1 to 2 percentage points over the full year 2023 SG&A expense as a percentage of sales. Net interest expense during the second quarter of 2024 was $2.3 million compared to net interest income of $8.3 million in the prior year quarter. The resulting $10.6 million pretax unfavorable impact is driven by the use of cash to fund the NuVasive line of credit paydown at merger close, share repurchases related to our buyback plan, the interest expense from the senior convertible note, which is assumed from NuVasive at merger close.

The GAAP tax rate for the second quarter was 33.2% compared to 22.7% in the prior year quarter, driven primarily by higher valuation allowances on foreign losses. Our non-GAAP tax rate during the second quarter was 24.4%. We expect our full year non-GAAP tax rate to be in the range of 24% to 25%.

Moving over to cash and liquidity. Our cash, cash equivalents and marketable securities were $520.7 million at June 30, 2024. Since the merger closed, we spent a total of $731.1 million to fund the NuVa line of credit paydown, which was $420.8 million as well as $310.3 million on share repurchases. We did not have any short-term borrowings against our line of credit, and our only long-term debt consists of the 0.375% senior convertible notes due in 2025. Our intent remains focused on settling these notes when they are due in March of 2025.

Our Q2 net cash provided by operating activities was $54.3 million, and free cash flow was $26.5 million. Consistent with my comments during our last quarterly call, we expect a temporary impact to operating cash flow as a result of higher accounts receivable balances driven by the systems integration and U.S. go-live. This temporary delay impacted the first and second quarters reflected as a higher working capital investment in accounts receivable.

We have no concerns regarding the collectability and expect to see higher cash collections during our third and fourth quarters. Capital expenditures during the second quarter were $27.8 million or 4.4% of revenue. We expect full year 2024 CapEx to be in the range of 4.5% to 5.5% of sales.

Shifting attention to integration. We continue to invest in our field sales team with high investments in new sets, product cross-training and enabling tech hands-on experience so we can drive increased commercial growth opportunities by providing expanded offerings to their surgeons.

Earlier this year, we rolled out a common operating system in the U.S. and are continuing to refine plans to begin rolling this out to our international businesses later this year, which will allow us to work as one team globally. Operations remains the strength of the merger. We are actively executing our plans around renegotiating supplier costs and investing in new machinery and equipment to expand our in-house manufacturing capabilities, which will drive planned cost synergies faster.

We're also working to consolidate volumes and orders with third-party vendors to accelerate delivery times and drive cost savings. The Memphis distribution center is now on a common operating system and becoming a larger part of the overall Globus business. All activities are progressing to plan. We are actively working now on synergies that will drive year 2 and year 3 savings. We again reaffirm our commitment to achieving the $170 million in cost synergies.

We remain upbeat and confident with our results thus far and expect an enduring focus on commercial growth and operational execution as we enter the back half of the year. Based on that, we are updating our previously provided guidance. We now expect 2024 net sales to be in the range of $2.47 billion to $2.49 billion and our fully diluted non-GAAP earnings per share to be in the range of $2.80 to $2.90 per share. Our revised net sales guidance implies 3.1% to 3.9% growth over 2023 pro forma revenues of $2.396 billion. The revised non-GAAP EPS guidance implies 20.7% to 25% growth over the prior year non-GAAP EPS of $2.32 despite a higher share count due to the stock-for-stock merger. We remain appropriately conservative with our projections, so as we continue to gain more and more confidence as we enter the second half of the year.

In closing, I want to take a minute to thank our team. We've driven a lot of change internally, and our team has stood up to the challenge. Bringing together these 2 great companies has been an opportunity for us to create the leading med tech company in our space. We have the technology, we have the manufacturing and supply chain, we have the financial resources, and most importantly, we have the people to take us to new heights and drive positive change to achieve our mission. We will remain steadfast in our pursuit of sales growth in a financially responsible manner adhering to historical Globus principles.

Operator, we'll now open the call for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Matt Miksic of Barclays.

[Matthew Miksic, analyst]

And congrats on a really strong quarter and sort of great results here in the first half. So I had one kind of multipart question, but kind of the same subject is really just around the sort of plans that you laid out when you initiated the acquisition of NuVasive and sort of the sort of pro forma numbers that you've been referencing. I think you were all familiar with over the last 1.5 years. I'm just trying to get a sense of at what point should we expect you to start, given that things are going, I'd say, better than expected. It's a simple way to put. But the point, should we expect you to start updating those numbers maybe with the whole front-to-back integration? And then also, at what point might you start to talk a little bit about the intermediate and long-term opportunity here? So not to look at the success of the first half and how great everything is going now, that kind of color would be for helpful.

[Keith Pfeil, executive]

Sure. Matt, this is Keith. I'm going to take the first part of your question, and Dan will take the second part. So to your comment, we've gotten off to a strong start. I think messaging wise, when we talked about -- when the deal was announced in February of '23 as well as when the deal closed in September, we remain very steadfast on -- to me, the merger thesis of why we're bringing the companies together. And with that, the cost synergies that we identified in terms of the number, the $170 million as well as where we thought there would be cross-selling opportunities for us to move forward.

We've gotten off to a strong start, especially in the light of some of the really negativity as it relates to the merger at the outset. But Dan and I have been consistent that as each quarter gets passed, we get more and more confident. We're coming up -- we're basically into the 11th month now of the companies being together. And I think after we get through this third quarter, you'll start to see us take a look back, recast how we performed in the first 12 months of the company as being together, and help provide some insights as we move forward.

But standing here today, like I said in my prepared remarks, we feel good about the $170 million. And really, the attention is shifting towards years 2 and years 3 as it relates to in-sourcing and getting that gross profitability back up to the mid-70s gross profit profile, which Globus has historically been known for.

[Daniel Scavilla, executive]

Yes, Matt, I'll build in on that. So obviously, Keith and the team are going to look at projections of where we're going to go for the rest of this year, roll that into 2025. We're also going to take that into a longer-term 3- and 5-year plan as we develop a strategic plan. We'll share some of that certainly when we get into our Investor Day coming up, that's really where I think you'll see more from that. Again, as you know, and what we'll always do, anything long term like that is directional. It's not going to be a commitment for us to do but rather what we project from what we see. So I would say stay tuned. I think we want to get through the third quarter, fine-tune where we want to be, we'll share what we think the year or next year could be and then longer-term projections based on those assumptions.

[Operator]

Our next question comes from the line of Vik Chopra of Wells Fargo.

[Vikramjeet Chopra, analyst]

Also congratulations on a great quarter. The 2 for me. One, you put up 30.2% EBITDA margin in Q2, well ahead of expectations. How should we think about margins for the full year? And then I had a follow-up, please.

[Keith Pfeil, executive]

Sure. So thanks, Vik. As I think about the full year, I think we're going to -- we don't necessarily give EBITDA guidance, but I think as we move forward, you'll see a little bit of a step down as we move forward into Q3, and that's really predicated on what we expect in Q3 with really a sequential step down in revenue. We're thinking that Q3 is going to look a little bit like fiscal '22 when you look at revenues from Q2 to Q3. That coupled with additional capital sales will create a little bit of a headwind on EBITDA. But for the full year, we're sitting here today, we did 30%, a little over 30% in Q2. I still think it will be difficult to get to 30% for the full year, but I think we're going to work to get closer to that.

[Vikramjeet Chopra, analyst]

Great. And then my follow-up question, I just wanted to ask you what you're seeing on the capital side. One of the large orthopedic competitors has talked about coming up with the spine robot at the end of the year and another competitor recently received FDA approval for the spine robot. Just talk about the market and the competitive landscape.

[Daniel Scavilla, executive]

Thanks, Vik. I'll take that. So a couple of things, right? Keep in mind that we have been executing our long-term enabling tech plan, and there's nothing that's occurred that would have us deviate from that. We'll take our existing technology and continue to expand its applications through proceduralization, things we've talked about openly with that. As you recall, one of the main drivers of the merger was to, in fact, increase our company total available market and create more areas for rapid penetration. So while we take any entrants seriously and we'll look at that, there's nothing that's occurred that has shifted the capital market in which we play or altered our plans at this point from where we're going. I would tell you, I was very pleased with where we were in Q2 and with the portfolio we're working on in Q3, it's one of the strongest. And so we'll continue to execute and stay focused.

[Operator]

Our next question comes from the line of Shagun Singh of RBC CM.

[Shagun Singh Chadha, analyst]

Congratulations. A lot of bright spots here. I wanted to focus on robotics. I'm just wondering if you can share -- provide any incremental color on why you're seeing such strong growth? Are you seeing the benefit of the combined sales force? What does the pipeline look like? And I guess I'm just wondering, is it possible for you to double the place of your -- the pace of your placements given the doubling of your sales force as we head into 2025? And then I have a follow-up.

[Daniel Scavilla, executive]

Thanks, Shagun. I'll take that. I'll start backwards. I would love to double the uptake of that. And we certainly have that potential. I think what you're seeing right now is, first off, the markets willingness and continued willingness to adopt the technology. So you're no longer really fighting or pushing to get it in there. Folks are actually pulling it with you, which helps. And so that's really part of the thing that's occurring that way. It has been primarily Globus focused to this point because as I've said, we're still working on the Reline, the Modulus, other type things that will make our technology more applicable to NuVa users. But again, I think that's coming within the second half of the year. And when we do that, I do think we'll see an acceleration. I'm not going to sign up for doubling, but I'll certainly push to try and do that, and we'll see where we get to.

[Shagun Singh Chadha, analyst]

Got it. That's helpful. And then just on the Recon robot. Can you talk about what exactly is differentiated in your system versus a Mako and a Rosa? And can you elaborate on your commercial strategy since it's an already a well-penetrated market? That would be helpful.

[Daniel Scavilla, executive]

No, no problem. So I won't elaborate on the commercial strategy. I want to go execute that and not lay that bear out for everybody to react to. So let's go back and do it that way. And rather than puts and takes of the robot having it just been approved, we're developing out our approach with this. And while I do think there's differentiating technology and I'm excited to get it out there, I don't want to go head to head or compare that right now on this call, but I'll be glad to do that with you some point offline as we take this further down the path.

[Operator]

Our next question comes from the line of Steve Lichtman of Oppenheimer.

[Steven Lichtman, analyst]

Dan, given your market share now in spine, I was hoping you can give an update on where you think U.S. market growth is now. And as you look back at the first half of this year on a pro forma basis, where do you put your growth relative to where you think the market is? And if you could talk a little bit about unit growth and pricing, that would be great.

[Daniel Scavilla, executive]

Yes. Steve, we'll do. So I would tell you, we don't have anything significant in pricing. We've always tracked along with low single digits with that. And for the most part, I would say we still adhere to that. There's nothing that's occurred from the market or from our growth that is either positive or negative along those lines. We said this all the time we talk. The marketing is an assumption.

My thought is that it's probably over the long term around 3%. There are certainly quarters that can be more or less with that. But I would just tell you, as we project that as a company, and we look for the multiple years, I still call that around the 3% range. With us, in particular, I'm happy with where we are. I think there's certainly puts and takes where we're strong in some areas, and we certainly have other places where I think if we can penetrate the right way we can even accelerate. But just my long-term guess would be around the 3% range. I couldn't tell you what I thought it was for first or second quarter so far this year.

[Keith Pfeil, executive]

And Steve, just one thing -- one comment I would add to Dan is one of the things that we've historically looked at, at Globus is the introduction of new products to offset price. I think with the first 2 quarters, you've seen us come to market with 5 new products in Q1 and another 4 this quarter. That strategy of bringing new product to market is hitting and that's something that will help us offset price as we see it now or in the future.

[Steven Lichtman, analyst]

Got it. And then just wanted to follow up on R&D expense. Took that down for the year came in lower in the quarter. Any change in philosophy there? Or are you sort of resetting projects as you integrate? Can you talk a little bit about how you're viewing investment in R&D overall now?

[Keith Pfeil, executive]

So the team is still focused on bringing new products to market that has and will remain the same moving forward. Really, as I look at this, it's really more cost control around third-party spending, consulting spending and things like that. As you know, Globus like to do a lot of things in-house. That strategy is moving forward, and it's really a testament to the teams coming together. Dan commented about the improved internal development process. You're seeing some of the numbers.

[Daniel Scavilla, executive]

And Steve, I would also just elaborate. We have not reduced or changed any in-process projects. We remain committed to putting them through.

[Operator]

We have a question from David Saxon of Needham & Company.

[David Saxon, analyst]

Congrats in the quarter. Maybe I'll start with guidance, both revenue and earnings. So you beat by about $14 million, $15 million. You raised the bottom by $10 million, top by $5 million. So I guess anything you're seeing in the market that is giving you pause for not raising by the full beat? And then kind of similar question on earnings. It looks like R&D maybe goes down, tax might come up. Does tax just more than offset all that, and that's why we're not seeing the full beat come through?

[Keith Pfeil, executive]

So a great question. As we think about top line, really goes back to what we've talked about the last couple of quarters, every quarter, we get more and more confident. We did the raise this quarter. We know we're still not through a full 12 months. We remain appropriately conservative, but we gain more and more confidence every day in the business.

As I think about the bottom line, I think that the team has executed pretty well in the first half of the year. I did call out last quarter that there was a $0.06 onetime right related to depreciation that we don't expect to repeat. It's a noncash add back. But as I look to the second half, all signs point to the business operating as we had intended. We'll remain -- we're, again, remaining appropriately conservative because we want to get through another quarter to see how things turn out. But all signs point to this business operating well according to what we had expected.

[David Saxon, analyst]

Okay. Super helpful. Maybe a quick follow-up on that. So do you view 12 months as kind of the milestone after which we might kind of have a "all clear" moment? And then my follow-up is just on the sales dissynergies assumption. Is that still $150 million or how is that tracking this year?

[Keith Pfeil, executive]

So I would say that as each quarter passes, we feel more and more confident, you have to remember what we've done, we went very fast since this deal was announced. We brought maximum disruption to the sales force and really to the internal organization, bringing the systems together, coming forward with new ways for them to go forward to sell, cross-selling. There's a lot of disruption.

So as we think about that first -- that first year, we want to make sure that we go fast but still maintain conservatism. The team has really come together. We've worked through issues and we're -- as we sit today, I feel more confident today than I did in the previous quarter, but I'm still understanding I'm still within 12 months.

As it relates to the dissynergy, the $150 million, again, as each quarter passes, we feel more and more confident. In some of my earlier prepared remarks, I talked about having consecutive growth in the musculoskeletal portion of the business as well as consecutive growth in the U.S. portion of the business. Those comments should help to indicate that we're getting more and more confident as we look ahead.

[Daniel Scavilla, executive]

Yes. And what I would build up to is certainly, we're looking to reach steady state by the end of the year. So I would tell you that it's more of a 12- to 18-month type of approach for us to get where we want to be. But keep in mind, too, this is even though we're in a strong spot right now. This is the point where we lean forward and push harder and not step back. We've got a lot of heavy lifting to do. We're mindful of that. We want to be appropriately conservative. We want to make sure we drive this well beyond where it needs to be to get this done right.

[Operator]

Our next question comes from the line of Matthew O'Brien, Piper Sandler.

[Matthew O'Brien, analyst]

Dan, I know you said you didn't want to talk about next year too much here, and I understand that. I just -- as I look at The Street where we're all modeling things for next year, it's about $180 million absolute increase. If you go back and look at GMED stand-alone and NuVa stand-alone, each of you would do something like $80 million and then $60 million, so that's about $140 million absolute improvement. So as I think about that $140 million versus the $180 million that The Street is modeling, there's a delta there, at the same time, you're still trying to integrate these teams and you're cutting some spending, et cetera. So maybe back to Steve's question in a long-winded way. The market is growing 3%, can you double that next year? Or is that how we should think about the combined entity for the next several years is doubling or even a little bit more the overall market rate?

[Daniel Scavilla, executive]

Yes. I appreciate it, Matt. Thanks. So a couple of things, right? We are going to strive to be a high single, low double-digit grower even through this merger approach. It is honestly too early for me to comment on where we'll be next year. Like I said, we've got a lot in front of us for now. We are going to have the Analyst Day and a longer look. So I think we can have a deeper conversation later in the year. So regardless of where consensus or the market is versus where we are, let's go have those conversations and see where we adjust that. But for right now, I don't want to go deeper into next year with everything that's in front of us for the second half of this year.

[Matthew O'Brien, analyst]

Got it. And then the follow-up is just on the reimbursement side. It looks like there is a pretty meaningful inpatient cut to single-level cases in the final rule. So I'm just curious how that could impact your business? And then how you're positioned for that on the ASC side? Because I know that's been a bigger push recently.

[Daniel Scavilla, executive]

Yes. I would tell you right now, we're not modeling or coming off track with anything we see related to the reimbursement that's occurred. I don't think we're going to signal that, that's an issue. I don't think you've heard that literally from anyone else who's announced so far through the year -- or through the quarter, excuse me, with that. And I would say with an ASC strategy, again, we, like others, have things that are in process and constantly developing and evolving. And we'll take a look at that. If this becomes a significant ASC approach, we'll react accordingly. But I'll be honest with you, with the bag we have and the opportunity we have throughout ASC, I feel really confident regardless of where this can go, that we're poised to do it and do it better than anybody else.

[Operator]

Our next question comes from the line of Jason Wittes of ROTH.

[Jason Wittes, analyst]

First off, in terms of synergies and cross-selling opportunities, have they evolved this quarter? Or are we still waiting to see those on a meaningful level? And how do you see it progressing for the rest of the year?

[Daniel Scavilla, executive]

Jason, it's Dan. So let's start with that is we do see cross-selling continue. To be honest, the more you do it with the teams, it gets a little bit blurred. So I don't have a precise number to put out for you with that type of thing. But we know the training is occurring. We see the teams sharing and cross-selling. We still have a decent amount of products to come in from our suppliers that can further help us with that. But what I think is it's occurring, it's getting incrementally better each quarter. And I think as the products arrive and we deploy them out to our teams, we'll see some lifts with that.

I think it was easier for us to model what it is. But as you execute and blend, it gets tougher, a little bit blurry to see. That's why I don't throw out of number, but I'm happy with it. I do see it as a potential and back to kind of Matt's question that was there before. I see that as one of the best ways to have a growth driver that goes above market as we really execute.

[Keith Pfeil, executive]

And just to add on to some of Dan's comments, I would expect the ability to cross-sell to improve as time passes because you have to remember, some of the earlier comments where Dan and I talked about investments, we've driven investments in new sets. Some of the legacy NuVasive products had a longer lead time because many of those products came from third-party vendors. As those products start to come in, that will drive greater ability for both legacy teams to cross-sell because there'll be more product on hand.

[Jason Wittes, analyst]

But it sounds like from your commentary that this -- it sounds like second half of this year is when we start seeing that given what's going with supply. And am I hearing that correctly?

[Daniel Scavilla, executive]

No, it's occurring today. It's occurring at an incremental pace. Each time we do this, it's getting better. And we have an order, honestly, a large amount of sets to further enhance that going forward. But what I'm telling you is we're blending the teams, it's really tough to look at a NuVasive versus a Globus at this point because they are teams and they act as one. So we're going to fuel them out. And what I think is we'll just see a natural lift in our sales based on teams applying this, whether be cross-selling or penetrating existing customers.

[Jason Wittes, analyst]

Got it. And maybe just a quick follow-up to a previous question. You were asked about dissynergies. And I think you -- if I heard correctly, $150 million to $200 million was kind of the number you put out at the beginning. And it sounds to me like really until we're past, I think you said 12 to 18 months, you're not willing to revisit that number. Am I thinking about that correctly as well? Is that kind of the way you're thinking about looking at your numbers and what the outlook might be and what the dissynergies may eventually come to be?

[Daniel Scavilla, executive]

I think so. It's certainly 12 months, and I would say 18 months up to the limit, right? So we have activities that are occurring. And I just think that by that 18-month period, we'll know for certain where we are. There's still a lot of things in play. Not worried about anything, but just saying, as we continue to work through, I'm not in a position now to speak with confidence and say, this is where it will finally be. I think we want to get another quarter or 2 under our belts to call that.

[Operator]

Our next question comes from the line of Matthew Blackman of Stifel.

[Mathew Blackman, analyst]

Can you hear me okay?

[Daniel Scavilla, executive]

Yes.

[Mathew Blackman, analyst]

Okay. Great. If I could start, Dan, just a clarification. I think you mentioned meeting a couple of approvals for NuVasive hardware on the robot. Can you just remind us those 2 products you talked about and the timing? And then I've got a follow up, a couple of follow-ups to that.

[Daniel Scavilla, executive]

Yes, no problem. What I was saying in my script was we will put NuVasive products on there. For example, Reline and Modulus would be the 2 obvious of pedicle screw and an inner body type of thing. And when we get that software and the things done, which we're in the process of doing, we should open up a larger customer base. So if we've got surgeons who are using those and are waiting to use those, once it's in our software and with our instrumentation, we would expect to see that lift and therefore, more sales occurring with NuVasive-based surgeons.

[Mathew Blackman, analyst]

Okay. Understood. And just on that point, I think you had already started gauging some of these accounts in the first quarter, may even started quoting some of them. Were there any placements or sales this quarter just out of curiosity? And then I do have one follow-up.

[Keith Pfeil, executive]

There was one sale that we closed thus far related to legacy NuVa account. As I think about the quoting volume and really the pipeline, there's strong interest on both sides. And to me, the amount of quotes you're putting out continues to increase.

[Mathew Blackman, analyst]

Okay. That's great. My final question, I swear. This is a little bit off the reservation, but I think maybe one of the underappreciated pieces of the portfolio that we're all going to probably see more and more about is the power to launch it. I'm just hoping maybe you could frame that opportunity for us and how you're thinking about that contributing into all the other sort of growth vectors you have over the next several years?

[Daniel Scavilla, executive]

Yes, we'll do and thanks. It is one of the things I've said before that I'm most excited about this year. We have a great, as you know, cadence right now with product launches. But that, in particular, we consider to be transformational. The fact that you can go out with that bone removal without soft tissue damage allows the surgeon to move freely where they want to not be restricted by artificial boundaries or other type things that can hinder what they want to do.

And so not only does it create that freedom and put more into the hands of the surgeon, I think that it can also make it safer by not having dural tears or other type of items that can occur. So I think that, that in itself as we scale up, and there's really a lot of hot interest for it in the field will continue for the years to come, and it will be one of the main growth drivers that we have.

[Operator]

Our next question comes from the line of Ryan Zimmerman of BTIG.

[Ryan Zimmerman, analyst]

I want to ask a lifetime ago, Dan, you talked about robotics and the ability for pull-through. And this was back in, I think, even 2018, 2017, when Excelsius was just launching. And at the time, we thought about 1 incremental case per week, and we kind of built an assumption around the incremental volumes that Globus would get from robotic adoption. Fast forward today, and you've added a lot more to Excelsius. And so I'm wondering if you kind of just opine a little bit on that pull-through impact kind of what you're seeing in the field today versus maybe when robotics was more in its infancy and whether our assumption of one incremental case as a result is maybe stale at this point?

[Daniel Scavilla, executive]

Thanks, Ryan. So what I think is this, when you place a robot, we see and we continue to see a lift in the implant pull-through, whether that be more procedures or more usage or several surgeons interested in doing that. That's kind of what we started with assumptions, and that remains today, and there can be a whole range depending on where you are and what they're doing. But I would say if you want to pick even a 20% lift for a period of time that occurs, possibly even more of pull-through as it's new.

Now obviously, that neutralizes over time. It's not going to create each account that way. But the good news is the robotic market in total is still in its infancy and very underpenetrated in total. And so there's still a lot of that growth that can occur throughout. And I think that's really where it is. So the assumptions, whether it be one case or not, I don't know because it depends on how many cases they're using. But if you pick something where you'd say conservatively 15% to 25% of pull-through in that first year and then remaining per robot, that's what I think you can model in and see as we go forward and what we've experienced since launch.

[Ryan Zimmerman, analyst]

Okay. Very helpful. Maybe turning to Keith. At some point, you're starting to generate some really nice free cash flow. Again, before the merger, you generated a lot of cash flow. What are you going to do with the cash, Keith? And how should we think about your capital allocation, especially as we're kind of lapping this merger now?

[Keith Pfeil, executive]

Yes, that's a great question. So as I think about capital allocation, number one, Globus is going to maintain strong balance sheet as part of our culture and will remain. Capital allocation is going to be focused on internal development from an R&D perspective, machinery and equipment. We've talked a lot about driving additional in-sourcing in the near term here.

As I think about longer term, I would absolutely think that we're going to continue to look at M&A opportunities within our core of musculoskeletal. I don't see us venturing outside of musculoskeletal. But as we move the business forward after we've digested this merger, I would expect us to become active again on the M&A front.

[Operator]

Our next question comes from the line of Richard Newitter of Truist.

[Ravi Misra, analyst]

This is Ravi Misra in for Rich. I wanted to ask about Excelsius and the kind of TKA program. You're talking about a little bit about rep hiring. And if you could give a little bit of clarity around that. What kind of approach are you going from a channel perspective, direct reps versus capital reps? And what kind of ASC versus inpatient/outpatient? How are you thinking about that opportunity ahead of you?

[Daniel Scavilla, executive]

Thanks, Ravi. So the answer is kind of all of the above. Very similar to what we have done with spine, what we've done with trauma, we intend to have our own stand-alone sales force. We certainly want it to be direct. It doesn't mean there's not an exception somewhere therein. But we build it in concentric circles. We're not going to go out and say, let's go hire 400 reps and see what happens. We're going to take it as we always do in a derisked approach, grow into it, move-on type approach.

The answer to where the focus is all the above, we're going to go to where the customers are and where the procedures occur in order to be meaningful. And so it's not one in particular, but rather how you approach all of them that way. And the thought will be certainly a handful of capital reps in addition to folks who are working with the knees just to help facilitate it through, but nowhere near the size of what I think we need for spine right now. And I think the real thing is, too, we're not going to detract the focus of our spine capital folks, given the opportunity that's ahead of us. This is going to be something that we do in addition. But if you know us, we know that we control our cost, we control our investment. You're not going to see a degradation of our numbers as we move forward into growth.

[Ravi Misra, analyst]

Great. And then maybe you mentioned this aspiration to get back to low double digit, high single-digit growth. How does the Excelsius factor into that? Is that kind of incremental to that high single-digit that consensus has next year? If you could just help us think about that layering.

[Daniel Scavilla, executive]

No, it's going to be all of the above type things, right? So anything you do with enabling tech is going to be to facilitate implant pull-through. And so as I speak about those ranges, it's as one company, and it's utilizing everything to get there.

[Operator]

[Operator Instructions] Our next question comes from the line of Craig Bijou of BofA.

[Craig Bijou, analyst]

I wanted to start on the enabling tech side. And the comment you guys made on the acceleration of the rental program and revenue was up 6%, but you guys had a lot of unit placements, robot unit -- record robot unit placements. So I guess, specifically, what's driving the acceleration of the rental program? Is it across the enabling tech so 3D as well and even the knee robot? And then what's the potential that it becomes a headwind because you are recognizing revenue over a longer time period versus the capital sale?

[Daniel Scavilla, executive]

Yes. Thanks, Craig. So a couple of things. I would tell you that it's just more customer preference for the rental side. It's something we've always offered, but it seems to be taking on a little bit more right now. It doesn't mean that we're announcing that we've become a rental company. It's just going to be we'll sell where we can, we rent where we can. There's obviously leases out there as well.

I'm not overly concerned about that blend suddenly taking us off revenue targets. So I think, if anything, I look at it like an annuity. Several of them, if not all of them, are pretty short term anyway. And one of the thoughts would be that they lead into a sale. And so I would tell you we're going to stay the course. If customers want to rent these, see if they convert into sales, great. But at the end of the day, I don't think it's anything that you would see a slowdown or anything like that. I think what you had for this quarter is unique.

First off, you had a strong comp last year. We had really good stuff that you're going against, which might have slowed it down to that 6%. But the unit placement, again, is probably more of a rev rec thing, which I just think we had a lift in this for the rentals, and we'll take that all day long because we play for the long term. And so if that's what we do for a couple of quarters and move on to other things, so be it.

[Craig Bijou, analyst]

Got it. That's helpful. And maybe combining that question with one of the earlier questions on the ASC or surgeries moving to the ASC. How do you guys think or what are you willing to disclose about targeting ASCs with the -- your enabling tech and driving business that way?

[Daniel Scavilla, executive]

I think it depends on the ASC and what they need, right? We want to sell the appropriate things in that will facilitate them treating customers the best way. And so we have already been there, and there are cases where they need a robot, there are cases where they need just hand navigation through the hub. I think we're really positioned to do that the best way that they want.

One thing I do want to put out is we're active with ASC. So I want to make sure we don't have the impression that it's something we're looking into. We are active there already. And it really, again, just depends on what those surgeons want and what's best for their customers, given their size and what their throughput is.

[Operator]

Our next question comes from the line of Matt Taylor of Jefferies.

[Young Li, analyst]

This is Young Li on for Matt. Can you provide us with some more color on the trauma business? It seems to be doing well and contributing to U.S. growth. Maybe if you can talk a little bit more about the drivers of that and the sustainability of that.

[Daniel Scavilla, executive]

Sure, Young Li. It's one of those long-term plans we've talked about since launching it and that it's going to be continuous and incremental growth similar to spine. So as you're penetrating that market, you're going to be contributing that way. So one of the factors of that growth is simply that we're penetrating the market as we add and make headway. The reason we're penetrating the market and creating headway is we've been decent at launching products, especially in the past year through the rest of this year, further allowing you to open up more areas to compete. And so you've got that rep hiring, market penetration, product launches.

One of the biggest lifts right away is the NSO now, and that in itself becomes a great product that can really open doors for us and has a big lift. So the combination through the merger with product launches with market penetration are what's allowing us to gain in the trauma business.

[Young Li, analyst]

Okay. Great. Very helpful. On the XLIF Prone system, I wanted to hear a little bit about how that stacks up versus the competition? What's differentiated about it and your thoughts on penetrating into that market?

[Daniel Scavilla, executive]

Yes. Well, not penetrating that market. We created that market for sure through the NuVasive team. And that's one of -- again, one of the reasons why we went in and did this merger. We're solid there with that type of approach. This is really enhancements that will further benefit the patient through a solid positioning, allowing you to have a more firmer retractor that's out there and also create better ergonomics for the surgeon as they're going in and doing this from the lateral side.

I think one of the many benefits to it, too, is marrying this up to work with our enabling technology really creates that holistic package of why we did this. It's marrying enabling technology, expandable cage technology, the incredible new invasive structure of proceduralization altogether. I think that's really where we come out strong. And I think if anything, we'll stay strong in this area. And of course, you just heard me dabble in on the neuromonitoring and how we're going out to expand that further and even enhance that capability. So all of the above, I think, will add into a very strong position in that procedure.

[Operator]

Our next question comes from the line of Ravi Misra, Truist.

[Ravi Misra, analyst]

Just 2 housekeeping questions. On the selling days, how do we think about that in the back half of the year? And second, on the convert in March, should we kind of think about that as paying that down or rolling it forward?

[Keith Pfeil, executive]

In the back half of the year, there's 1 more day in Q3, 1 more day in Q4. As it relates to convert, you are correct. We will look to settle those notes when they are due in cash. That's the current intent. If anything changes, we will report out on our next earnings call, but I don't see anything changing there.

[Operator]

All right. With no further questions, this concludes the Globus Medical earnings call. Thank you for participating. You may now disconnect.